Ten years since effective deregulation of the sector, via 2006 abolition of the controversial Groceries Order, new rules to “rebalance relationships” and ensure “fair and sustainable” treatment of Irish suppliers entered into force on 30 April 2016. What’s involved and will it work?
What are the New Rules?
The Consumer Protection Act 2007 (Grocery Goods Undertakings) Regulations 2016 were enacted to implement a commitment in the Programme for Government 2011-2016 “to ban a number of unfair trading practices in the retail sector, such as ‘hello money’ from food suppliers” and they came into operation on 30 April 2016.
The new rules will affect contracts for the sale or supply of grocery goods to any wholesaler or retailer of grocery goods (broadly meaning food or drink to be consumed off-premises) with annual turnover of over €50 million (a “Large Buyer”).
These contracts, in general, must: be in writing; record all terms and conditions in clear understandable language; be signed by both parties; be retained by each party; not be terminated, renewed or varied except in accordance with their express terms; and not impose liability where force majeure events impede performance.
The new rules also prohibit certain practices unless specific conditions are met. These practices include requiring the supplier to pay, or otherwise account, for: stocking, displaying or listing (except
as a ‘promotion’) of supplier’s goods by a Large Buyer; promotion of supplier’s goods on a Large Buyer’s premises; Large Buyer’s marketing costs; shelf space in the Large Buyer’s premises; advertisement or displaying of the supplier’s grocery goods on the Large Buyer’s premises; wastage at the premises of the Large Buyer; and shrinkage (except where the Large Buyer is a wholesaler).
The timing of payment and other practices in the sector are also affected by the new rules. Suppliers can, in certain circumstances, request purchase forecasts and estimates of the cost of promotions, marketing, wastage and shrinkage of suppliers’ goods from the Large Buyer.
In addition, the new rules impose compliance responsibilities (annual reporting, training and record maintenance) on Large Buyers. Ireland’s Competition and Consumer Protection Commission (“CCPC”) is responsible for the enforcement of the new rules. Breaches of the new rules can result in criminal proceedings, potentially leading to fines as high as €100,000 and/or imprisonment for up to two years per conviction on indictment.
Will the New Rules Work?
A key determinative in answering that question is whether the CCPC, charged with ensuring compliance, will vigorously enforce the new rules? To enforce rules that likely increase prices, even if some of that increase may be passed on to relatively small-scale indigenous producers, may not be in a typical competition law enforcement agency’s DNA. Certainly, before the 2014 merger of Ireland’s competition and consumer agencies to form the CCPC, it would not have been the old Competition Authority’s main focus: no prosecution was pursued by the agency under 2006 rules that, on paper at least, outlawed certain unilateral conduct by Ireland’s multiples.
But since amalgamation with Ireland’s consumer agency, the CCPC’s enforcement focus has shifted somewhat. The CCPC’s most visible and active enforcement action is now on the consumer protection side. Of note on this front, when the new rules came
into force, the CCPC took the unexpected step of issuing a media statement affirming that the new rules “ ... are an important addition to the enforcement tools we have at our disposal and we are committed to using all of our powers to create a culture of compliance in the grocery sector to benefit consumers and businesses.”
But an unintended consequence, if retailers face overly burdensome compliance obligations when buying from Irish suppliers, could be increased procurement from abroad. Even if it was minded to do so, the CCPC’s ability to enforce the new rules in respect of procurement deals made outside the jurisdiction (where the application of Irish law may be debatable) may be limited.